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AFH ready to see off consolidation competition as profits surge

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AFH ready to see off consolidation competition as profits surge

Advice consolidator AFH is targeting another slew of IFA acquisitions after seeing profits surge.  

AFH has bought IFA business at a rate of one a month over the first half of this year; that equates to £270 million in new client portfolios or £35 million per month.

These deals have brought the group’s total assets from £2.2 billion at April 2017 to £3.2 billion, a 45% increase.

For the six month period, AFH has reported revenues of £22.7 million (63% higher than the first half of 2017, £13.9 million)..

Profit after tax rose 177%, to £2.5 million.

As part of its half yearly results AFH breaks down its fee income.

  • Recurring revenue is 59% of total revenue during the period. Recurring fee income increased by 38% over the six month period, AH said. 
  • Initial financial planning fees totalled £5.6 million, an increase of £1.5 million (37%).
  • Ongoing investment management fees increased to £13.2 million (2017: £9.8 million).
  • Annualised revenue per adviser increased to £220,000, up from £180,000).

AFH generated a war chest for acquisitions worth £17 million last year with successive share issues. In today’s results update the company said it holds cash reserves totalling £23.7 million.

Chief executive Alan Hudson said the firm had a 'strong pipleine' of acquisition opportunities.

'The institutional fundraising which closed in December 2017 has provided the company with the ability to undertake a number of strategic and tactical acquisitions during the remainder of the year and into 2019,' he said. 

'While AFH has a strategy of continuing to increase the average size of its acquisitions, the company also remains committed to providing an exit for retiring IFAs where our existing advisers can offer the full AFH service to the acquired client base.'

AFH described the market for advice acquisitions as ‘buoyant’ despite ‘some upward pressure on prices’ in larger businesses where AFH is facing competition from rivals such as, it said, private equity and product providers.

While AFH did not name names, examples might include Succession Group, which is backed by private equity investor Inflexion, or Ascot Lloyd, which has private equity backing from Oaktree Capital Management. On the provider side Standard Life’s national advice arm 1825 has snapped up several larger advice businesses as has Quilter/Old Mutual with deals including the acquisition of the Caerus network last August.

AFH said: ‘During the period we completed six acquisitions for an initial consideration of £3.2 million, encompassing both retiring IFAs, whose client portfolios have been transitioned to existing AFH advisers, as well as larger organisations whose clients and advisers have been absorbed into the AFH model’

AFH said its acquisition model kept clients on existing platforms and products ‘where appropriate’, but ‘enables them to move to our cost-effective discretionary service where a clear benefit to the client can be demonstrated’.

It then added that future deferred consideration of up to £3.5 million is payable on these acquisitions over the next two financial years depending on their achievement of financial targets. During the period AFH also paid deferred considerations, based on the profitability of the acquired businesses, in excess of 90% of the expectation.

Hudson said : ‘The strategy of the company continues to be to generate long term value for shareholders by providing exceptional value and service to our clients and using our increasing size to drive down platform and fund management charges aligned to an appropriate risk based investment model.’

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